The UAE, an island of political stability in a region marked by turmoil, remains one of the world's most reliable producers and exporters of crude oil. Despite continued growth in sectors such as tourism, construction and real estate, the oil and gas industry remains a highly significant contributor to the UAE's gross domestic product.
Despite the increase in shale oil production in the US and elsewhere in recent years and extreme volatility in the price of oil, the consensus is that the UAE and the Middle East in general will maintain its status as a major centre of global oil supply due to relatively low production costs in the region and proximity to expanding Asian economies.
The UAE has the world's seventh largest proved reserves of both oil and natural gas, estimated at 97.8 million barrels and 215 trillion cubic feet respectively. This means that it holds 4 per cent of the world's proven oil reserves and 3.5 per cent of proven gas reserves. Most of the UAE' reserves (95 per cent of the nation’s oil reserves and about 94 per cent of its gas reserves) are in Abu Dhabi, both offshore and onshore. The world's seventh or eighth biggest oil producer, the UAE is the fourth largest net oil exporter: crude oil exports amounted to 2.9 million barrels per day (bpd) at the end of 2014, roughly 15 per cent of OPEC's total oil output. A heavy programme of investment in Abu Dhabi, amounting to more than US$70 billion, continues as the emirate's Supreme Petroleum Council (SPC) and the Abu Dhabi National Oil Company (ADNOC) seek to achieve a target of 3.5 million barrels per day by 2017.
At the offshore Upper Zakum field, Abu Dhabi's largest with estimated reserves of 50 billion barrels, which is operated by ADNOC in partnership with ExxonMobil and Jodco, as much as US$14 billion will be invested to increase production from the current 585,000 bpd, first to 750,000 bpd and then, by 2024, to 1 million bpd.
Onshore, the Abu Dhabi Company for Onshore Oil Operations (ADCO), plans to invest a further US$5 billion to US$7 billion to meet its production target of 1.8 million bpd by the end of 2017. ADNOC and Total signed a 40-year concession agreement for the ADCO onshore fields in January 2015, the original 75-year concession having expired on 10 January 2014. Total received a 10 per cent participating interest in the new concession and is appointed asset leader for the South East and Bu Hasa integrated asset groups. Additional companies will be added.
The SPC's decision on the ADCO concession will not only determine the future of Abu Dhabi's major onshore oil resources but will also set the tone for renewal or restructuring of the offshore concession held by ADNOC's Adma-Opco operating subsidiary, which expires at the beginning of 2018. Adma-Opco is a joint venture between ADNOC, BP, Total and Jodco. (Click here for information on the background to the original oil concession agreement.)
A number of new entrants into the UAE's oil industry, like the Korean company, KNOC, are also exploring for new fields.
Increased oil production leads to increased exports. To bolster the security of its oil export capacity in the face of regional political unrest and concerns over the Strait of Hormuz chokepoint at the mouth of the Gulf, Abu Dhabi's government-owned International Petroleum Investment Company (IPIC) developed a 370-kilometre crude oil pipeline from Habshan, where Abu Dhabi's biggest onshore oil fields are located, to Fujairah on the Arabian Sea coast. The Abu Dhabi Crude Oil Pipeline was inaugurated in 2012 with an initial capacity of 1.5 million bpd, with expectations that this would eventually be expanded to 1.8 bpd. The pipeline allows the UAE for the first time to export crude from a terminal outside the Gulf.
Abu Dhabi's gas production has increased significantly in recent years due to major projects to integrate offshore and onshore production of associated gas from large oil fields and reduce gas flaring. Abu Dhabi, which was the first Gulf state to produce LNG, has long-term contractual commitments to export gas. At the same time domestic demand for gas, primarily used as a feedstock for power and desalination plants, has spiralled. Gas is also used for reinjection into oilfields to maintain wellhead pressure and it is used in the rapidly expanding petrochemicals and fertiliser sectors.
In the last few years, ADNOC's gas producing unit, Adgas, has doubled its gas output to 2 billion standard cubic feet per day (scf/d), half of which goes to Gasco's facilities in Habshan for further treatment before it is pumped to the national grid in Abu Dhabi and the other emirates. Adgas plans to increase production to 2.4 billion scf/d by 2017.
A number of tecnically challenging projects, including the exploitation of sour gas, form part of these plans. Ultra-sour gas contains high concentrations of hydrogen sulphide, a gas which is both highly corrosive and deadly if inhaled at even low concentrations. Gas fields with similar hydrogen sulphide concentrations have been developed elsewhere in the world, but not often, which is why ADNOC has joint ventured with leading international oil companies to develop gas fields such as Bab and Shah.
ADNOC expect to start production at the Bab sour gas field in 2020. Under development with the assistance of Shell, this will add more than 500 million scf of gas to Abu Dhabi's supplies. In the meantime, the Shah gas project has commenced operations and is expected to reach full capacity by the end of 2015. The multi-billion dollar project, which is being operated with Occidental Petroleum, is producing usable gas from Shah's high-sulphur field. The project will process around 1 billion cubic feet a day (bcf/d) of sour gas into 0.5 bcf/d of usable gas. As well as gas for industry and power generation, Shah will produce significant volumes of condensates, a light oil that can be used to make vehicle fuels.
Wintershall, OMV and ADNOC are also appraising the Shuwaihat sour gas and condensate field about 25 kilometres from Ruwais. A successful evaluation and subsequent production could make Shuwaihat one of the most important natural gas and condensate fields in the western region of Abu Dhabi.
In addition, other emirates in the UAE are stepping up gas exploration and production, much of which is outlined below. A notable gas-related development in the UAE in recent years has been the start of gas imports, first in late 2007 by Dolphin Energy's undersea pipeline from Qatar and more recently in 2011 with the commencement of summer imports of LNG cargoes at floating regasification facilities in Dubai. The Dolphin Project, a collaboration between Mubadala Development, Total and Occidental, involves the production and processing of natural gas from Qatar's North Field and transportation of 2 billion scf of gas through the first intra-GCC network connecting Qatar, UAE and Oman. The long-term customers for this gas are Abu Dhabi Water and Electricity Company, Dubai Supply Authority and Oman Oil Company, meeting roughly 30 per cent of the UAE's energy requirement and delivering significant volumes of natural gas to the country's seven emirates.
Abu Dhabi's state-owned IPIC and Mubadala Development are also developing an LNG import facility in Fujairah, on the Arabian Sea coast. This gives the UAE access to global LNG supplies without the need to transport the fuel through the Strait of Hormuz to a Gulf port.
In the longer term, the UAE is pursuing plans to diversify its domestic energy supply to include nuclear and solar power, waste-to-energy projects and, in Dubai's case, high-efficiency coal-fired power generation. Such initiatives should in time help to reduce carbon emissions and lessen the pressure on the country's gas supplies. However, natural gas will remain the main source for generating electricity, at 70 per cent by 2020, while nuclear power and renewable energy will contribute 25 per cent and 5 per cent respectively.
Environmental mitigation, especially amid heightened international concern over global warming, presents a substantial challenge to the global oil and gas industry, which is under pressure to find ways to cut its carbon emissions. The UAE’s oil and gas sector has accepted the challenge, and is already making progress with a number of initiatives.
As an example, ADNOC is well on the way to eliminating gas flaring. By reducing the wasteful burning of gas at production facilities and oil refineries through better management, the company is not only cutting carbon dioxide emissions, but is also conserving a valuable energy resource.
ADNOC is also a partner in an ambitious scheme to develop a carbon capture and storage network for the UAE. The plan is to capture carbon dioxide emissions from major Abu Dhabi industrial installations and pipe the gas to oil fields for use in enhanced oil recovery projects. Eventually, the carbon dioxide would be permanently stored underground in the depleted reservoirs.
In this context, ADNOC and Masdar have formed a joint venture focused on exploring and developing commercial-scale projects for carbon capture, usage and storage (CCUS). A contract has already been awarded to Dodsal Group to build a carbon dioxide compression facility and a 50 kilometre pipeline.
For the joint venture's first CCUS project, carbon dioside will be captured onsite at Emirates Steel, compressed, transported and injected into fields operated by ADNOC. The project will sequester up to 800,000 tonnes of carbon dioxide annually. Completion is set for 2016.
In the downstream petroleum sector, IPIC and ADNOC's oil refining company, Takreer, has for several years been pursuing refinery upgrades designed to expand Abu Dhabi's petroleum processing capacity to 885,000 bpd from 485,000 bpd. Takreer has added 417,000 bpd of new processing capacity at the existing Ruwais refinery, located about 200 kilometres west of the UAE capital on Abu Dhabi's coast and IPIC is building a new 200,000 bpd refinery in Fujairah. This will produce distillates for local use, for export and for bunker fuel, Fujairah being a major bunkering centre.
The UAE also manufactures an estimated US$11 billion worth of chemical products, including plastic and fertilisers. Related to the Ruwais refinery expansion, ADNOC's fertiliser arm, Fertil, has developed a US$1.2 billion nitrogen fertiliser plant at the location. Bourouge, a joint venture between ADNOC and the Austrian oil company OMV, and Tacaamol, a joint venture between state-owned Abu Dhabi Chemical Company (Chemaweyaat) and IPIC, are expanding existing and developing new petrochemicals facilities at Ruwais.
As a spin-off from the Shah project, Abu Dhabi will become the leading regional exporter of sulphur, which is used to make fertilisers, rubber and sulphuric acid. The emirate has developed a dedicated spur of the UAE national railway system – a major federal infrastructure project currently under development – to transport sulphur from the Shah gas field.
Dubai Supreme Council of Energy, oversees the effective planning of Dubai's energy sector with a primary focus on energy sustainability. It is currently the emirate's highest energy policy and planning authority, equivalent in some respects to Abu Dhabi's SPC but with a mandate that extends across the petroleum and power sectors.
Dubai's current oil reserves are about 4 billion barrels. Dubai’s oil production, which once accounted for about half the emirate’s GDP, has fallen dramatically in recent years. As a result, the emirate has swung from being a net oil exporter to importing most of its petroleum requirements. However, a new offshore oilfield, named 'Al Jalila' after H.H. Sheikh Mohammed bin Rashid Al Mubarak's youngest daughter, set to begin production in 2016, should notably increase the production of crude in Dubai.
While it continues to pump gas from offshore fields, and it has identified significant reserves of gas in its new T-02 deep gas exploration well, Dubai also consumes more gas than it produces, and is increasingly dependent on imports to make up the difference. The emirate already purchases several hundred cubic feet per day of gas from Dolphin Energy through its subsea pipeline, and in 2011, after completing the construction of a receiving terminal, Dubai started importing 650,000 tonnes per year of LNG under a contract with Qatar Petroleum and Shell.
However, Dubai remains deeply involved in the petroleum sector as a hub for oil trading and energy services. The port of Jebel Ali, located about 35 kilometres south-west of the city of Dubai, handles a large part of the UAE’s trade in refined petroleum products.
Horizon Terminals, a unit of Dubai's government-owned Emirates National Oil Company (ENOC), is establishing a new US$142 million oil storage terminal at Jebel Ali. The project includes a 60 kilometre pipeline link to supply jet fuel to Dubai's new Al Maktoum International Airport. It will be supplied by ENOC's existing 120,000 bpd Jebel Ali condensate refinery, which processes feedstock imported mainly from Qatar and Abu Dhabi, and by marine tankers calling at the new facility's jetties.
Four of the UAE’s other five emirates also have minor amounts of oil and gas production.
The government-owned Sharjah National Oil Company operates the emirate's hydrocarbon interests on a commercial basis and invests in firms and facilities in the oil and gas sector. Crescent Petroleum, a private Sharjah company, produced oil from the Mubarak field in the Gulf, near Abu Musa Island until the end of 2009, when it determined that the field had reached the end of its productive life and returned the concession to the government of Sharjah.
The offshore Zorah gas field in waters shared between Sharjah and Ajman is being developed by Sharjah-based Dana Gas and Crescent Petroleum. Production is expected to be in the region of 50 million to 60 million scf/d. Dana and Emarat, a Dubai marketer of petroleum products, have jointly developed a common-user gas pipeline to serve Sharjah customers.
Crescent and the Russian state-controlled Rosneft are also exploring for gas under a Sharjah concession covering the emirate’s onshore area. According to the company, exploration work completed to date indicate significant potential recoverable volumes.
Gas production from the Atlantis field offshore Umm al-Qaiwan began in 2008. A unit of China’s Sinochem is developing the deposit and sending as much as 92 million scf/d of liquids-rich gas through an undersea pipeline to a Ra’s al-Khaimah processing plant operated by the government-owned Ras Al Khaimah Gas Commission, or RAK Gas.
RAK Petroleum, a private-sector Ra’s al-Khaimah company with international operations, holds domestic interests in oil and gas concessions in Sharjah and its home emirate. It's 42-per-cent-owned affiliate DNO International produces about 35 million scf/d of gas from two fields in Oman's territorial water off the Musandam peninsula, adjacent to Ra's al-Khaimah, from which the UAE emirate sources gas.
Fujairah does not produce oil or gas, but it boasts one of the world’s largest bunkering ports, the port of Fujairah, on the Arabian Sea, handling millions of tonnes of marine transportation fuel and other oil products.
With the completion of the strategic crude oil pipeline from Abu Dhabi, Fujairah is undergoing rapid expansion, including the development of the UAE's second largest refinery and the building of storage and blending facilities. Sharjah-based Gulf Petrochem, a private company, commissioned a new oil products storage terminal at Fujairah with a capacity of 412,000 cubic metres. Vopak Horizon Fujairah has also expanded its Fujairah oil storage facility by 600,000 cubic metres to 2.1 million cubic metres.
Fujairah has plans for one of the largest LNG regasification plants. In addition, gas imports through the Dolphin Energy pipeline linking Qatar and the UAE have facilitated power and water development in the emirate and stimulated local industry.
As the UAE’s oil and gas sector developed sophistication, it gave rise to a number of public and private sector companies that pursue energy development abroad.
In Abu Dhabi, three government-controlled entities, Mubadala Development, the Abu Dhabi National Energy Company, or Taqa, and IPIC, are the main vehicles for such enterprise. Mubadala is involved in enhanced oil recovery projects in Oman and Bahrain and gas production in Thailand and Indonesia. It also announced recently that oil production has commenced at its Manora fields in Thailand. As the controlling shareholder of Dolphin Energy, Mubadala also produces gas and condensates in Qatar sending up to 2 billion cubic feet per day to the UAE and Oman.
Taqa, operating in 11 countries across four continents, produces most of its oil from the UK North Sea, while its gas production is concentrated in Western Canada and the Dutch North Sea. It also owns interests in pipelines, production platforms and gas storage facilities in those areas, and is leading a project in the Netherlands to develop a major gas storage and marketing hub for western Europe. In addition, Taqa has a substantial international and domestic portfolio of power generation assets. Taqa acquired a 53.2 per cent operating interest in the Atrush Block of Iraqi Kurdistan, where it has subsequently made a commercial oil discovery.
IPIC has acquired a wide portfolio of oil and petrochemicals interests in North America, Europe and Asia and is involved in more than 18 companies and projects across the globe. It is a major shareholder and strategic partner of Austria’s OM, owns 100 per cent of the second largest Spanish oil company, Compania Espanola de Petroleos; and holds an indirect interest in a large LNG development in Papua New Guinea.
The Dubai Government’s ENOC has a 52 per cent interest in Dragon Oil, which produces oil and gas in Turkmenistan. Al Thani Corporation, a private-sector Dubai company, is exploring for oil and gas in several African countries including Sudan, Egypt and Libya.
Sharjah affiliates Crescent Petroleum and Dana Gas have a gas joint venture in Iraqi Kurdistan with OMV and Hungary's MOL as junior partners. Dana also produces oil and gas in Egypt.
RAK Petroleum is involved in oil and gas exploration and production in Iraqi Kurdistan, Oman, Yemen, Tunisia and Somaliland.It has also acquired Mondoil Enterprises, which has a stake in the two largest gas producing fields in Cotê d'Ivoire.